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Friday, March 15, 2013

Financial Analysis

These thoughts are centered on financial analysis and the creation of value for a commercial or industrial enterprise.
Financial analysis is a method of analyzing the financial health of a company based on accounting documents, schedules, forecasts and intangibles such as a factory visit or experience managers.
The objective of financial analysis is to answer two questions that may vary depending on where we place ourselves.

Shareholders: Does the company within the scope of my investment strategy?

Creditors: If I lend money, will I get it?

Attention, everyone can be an investor or creditor! Buy shares makes you a shareholder, subscribe to bonds makes you creditor. However, you have to analyze the company whoever you may be!
I strongly emphasize this point, since the financial environment changes over time, the safe products become risky and that deserve analysis. Even in times of euphoria, a financial analysis is essential because even the best company’s of euphoria can fail.
From my point of view, what I could see between schools, banks, investors and entrepreneurs, financial analysis is often incomplete. It is not enough to look at whether a company has been profitable for the last 3 years by adding liquidity ratios, management, structure, or even credit for a complete analysis.

When a company makes a profit, we must always ask ourselves whether these profits can be converted into cash. It is only with cash that a company can repay its debt or pay its shareholders.
Analysis of cash flow or cash flow-often forgotten-is an essential step in any financial analysis. A company may have an increase in its constant activity, an important benefit but have a severe shortage of cash. Most of the Americans investors know this and have invented one worship saying: Cash is king.
While many start ups rely on equity funds that imply they lack the cash to finance their activity despite growth rates maddening.